Carmel thumbs nose at Indiana’s new short-term rentals law

Officials in one of Indiana's wealthiest cities are thumbing their noses at a new state law intended to curtail local governments' authority to regulate short-term rental platforms like Airbnb, raising the possibility of a court fight.

Supporters have applauded Indiana—now the fourth state, following Florida, Idaho and Arizona—for developing statewide standards for short-term rentals. They said the measure by Rep. Matt Lehman of Berne, who is one of the most powerful Republicans in the House, would promote tourism and economic development, as well as generate tax revenue.

But opponents argue it's just the latest example of the Indiana Legislature's Republican majority—a party that often extols the virtue of local control—supporting legislation that would tie the hands of city and county governments.

Enter the upscale Indianapolis suburb of Carmel, which approved new short-term rental regulations on Jan. 8—just days after a cutoff deadline set in the law for municipalities that want to have their ordinances grandfathered in.

"We are exempt from the state legislation," said Carmel Mayor Jim Brainard, a Republican.

He argues the city's short-term rental regulations, which are stricter than the new law allows, were not put in place through a new ordinance, but rather as an update to an existing ordinance that has been on the books for about 30 years.

That's the exact type of scenario that Lehman, who could not be reached for comment, previously said he wanted to avoid. It also surprised a number of lawmakers, including Rep. Jerry Torr, R-Carmel, who opposed the bill.

"I don't think the new ordinance that Carmel passed on Jan. 8 is grandfathered," Torr said.

Online home-rental services such as Airbnb are considered by some to be an innovative way to make extra cash, but neighbors aren't always enthused. As the emerging market has grown, so have local restrictions in cities across the U.S., including New Orleans, Chicago, New York, Nashville, and several places in Indiana.

Carmel has sought to ban homeowners from renting out secondary homes that are not their primary residence. That will be prohibited under the new law, though municipalities are allowed to pass restrictions, such as requiring a permit to rent, or adopting noise and nuisance ordinances.

Homeowners associations are also allowed to restrict short-term rentals.

"The Legislature doesn't trust the people who elected them," Brainard said. "They have taken over all the decision-making."

Opponents say it continues a trend.

Two year ago, as city officials in Bloomington debated a ban on plastic shopping bags, the Legislature passed a bill prohibiting local governments from instituting such a ban. Property tax caps, which were implemented in recent years, also have a similar effect, taking away a source of local revenue often counted on for school funding.

Even Indiana's 2015 religious freedom law, which was changed after it ignited a firestorm of national criticism, was initially intended to circumvent local governments such as Indianapolis that had adopted anti-discrimination ordinances.

Lehman argued during the legislative session that the measure was an effort to strike a balance between protecting property rights and preserving local governments' ability to self-regulate.

"We did allow for updating existing ordinances," said Republican Sen. Mark Messmer, who shepherded the bill through the Senate. "Whether Carmel meets that definition or not, I couldn't say for sure."

Torr said Carmel's argument that it is exempt is a legal question that he's not sure anyone can answer "until a court makes a determination."

Indiana is one of Airbnb's fastest growing destinations. The company said Indiana hosts last year made a combined total of nearly $21 million, which was about $4,700 in annual income for the typical host.

Indianapolis, South Bend, Bloomington, Michigan City and Fort Wayne have seen the greatest number of Airbnb stays while Carmel hosted about 1,570 guest arrivals with an income total of $270,000.

For several years, however, Carmel officials have tried to rein in its prevalence.

John Molitor, an attorney who advised Carmel on the zoning matters, believes the city's new regulations follow the letter of the law, if not Lehman's intent.

"People can have different opinion about how legislation should be read," he said. "We didn't actually take issue with the legislation during the session because we looked at it as if it allowed us to do what we have been doing."